Double Handshake

You may remember my sneering at the phrase describing Latin America as “the US’s backyard” a year ago. Well, now, courtesy of a recent Bloomberg article, there’s now some competition. The story is officially about Hu Jintao’s current visit to Brazil, but it’s really a News Story that we shall undoubtedly come to loathe in the coming years: BRIC-clashes. The story has some truly venomous interview quotes describing the high-level meeting as “sleeping with the enemy” and comparing China’s trade with Brazil to Portuguese colonialism in the 17th and 18th centuries. Most importantly, we get lots of territorializing.

When Brazilian President Luiz Inacio Lula da Silva hosts his Chinese counterpart today, he will welcome a leader whose economy is growing faster than his own — and whose exporters are outstripping Brazil in its own backyard.

So, Latin America is Brazil’s backyard. Well, that’s a nice twist on the usual “US’s backyard” at least. Then again, if  you’re being “outstripped” in your own backyard how long can it really stay yours? I wondered. This was cleared up later in the article:

“The world is China’s backyard and Brazilians shouldn’t be so hyped up about it,” Jim O’Neill, London-based chief global economist for Goldman Sachs Group Inc, said in an interview. “There’s a natural symbiosis in trade between the two countries despite Brazil’s legitimate desire to be a manufacturing powerhouse.”

I read this. Then, I read it again. It still doesn’t make total sense to me. I’m not sure if this is a case of sloppy editing, if he was quoted out of context or if Jim O’Neil (who coined the term BRIC in 2001, the article points out) was just speaking bombastically without meaning. I’m guessing O’Neil was arguing that since China exports more goods to other Latin American countries, Brazil “shouldn’t be so hyped about it” because it is no different than any other country whose exporters are being undermined by the Chinese.

Trouble is, the paragraphs leading up to the quote are about China-Brazil trade and investment. Also, the “symbiosis” second half of the quote seems to be about the dynamic only between the two countries – ie. Brazil produces oil and China consumes it, etc. This reading makes sense if you remove the bit about “the world is China’s backyard” first. In other words, “Don’t get worked up Brazil, in fact your trade relationship with China is largely symbiotic.”

But, what about the message: “Relax, Brazil, because the world is China’s backyard and you have a symbiotic trade relationship with it,” makes any sense – logically, geographically or economically? What am I missing?

In an effort to clean out my DH story folder in one fell swoop, here are some recent developments I haven’t gotten around blogging about:

First and foremost, for anyone looking for a good China blog in Spanish, look no further than ZaiChina (h/t to Danwei for the heads up). Launched this month, ZaiChina seems to have a very good sense of life on the ground in Middle Kingdom. Article translations, book reviews and pop culture trend-tracking. Here’s hoping this promising blog keeps up the good work.

Way back in the aftermath of January’s earthquake in Haiti, ChinaHush (another great bridge blog) translated a story from Chinese newspaper Southern Weekend about a group of illegal Fujianese immigrants en route to the US who were caught on the island on their stop over. While not about Latin America per se, it’s a eye-opening read on the underworld of “snakeheads” and human cargo network that runs through Mexico and other LA countries as well.

China and Peru officially kicked off their free-trade agreement earlier this month. Officials expect bilateral trade to double to US$15 billion. I’ll keep looking for Peruvian “exports of fresh fruit like grapes, mangoes, citrus fruits and avocados,” on produce stands in Beijing. Meanwhile, China and Costa Rica are in the final approval phase of their own FTA.

There has also been some negative press on China’s economic impact in Latin America of late. The World Bank and International Development Bank said Latin America’s heavy reliance on China as a commodities buyer is full of risk and instability, and advised Latin American economies to diversify. Asia Times published a similarly themed piece last month on Brazil’s trade dealings with China. Brazil’s manufacturing companies have been hit hard by cheaper Chinese-made goods. Jose Augusto de Castro, vice president of the Brazilian Foreign Trade Association, went as far as to call Brazil’s growing trade relationship with China “a step backwards.”

For even more economy action, Latin Business Chronicle published a long, comprehensive look at China-Latin American trade and investment in 2010: Latin America: Year of the Panda?

There have been a few billion-dollar deals signed between state-owned companies as well. China’s largest utility company State Grid announced a 50-50 joint venture with Canadian mining company Quadra to develop copper mines in Chile. State Grid is the largest consumer of copper in the world, and the move gives it greater control over the raw material it desperately needs for power cables. Then, earlier this week, CNOOC, China’s largest off-shore oil company, said it would take a US$3.1 billion 50% stake in Argentinean energy firm Bridas Corp.

Finally, a bit of trivia. What percent of Peru’s current population has origins from China? Answer: 15%, which is the highest percentage of all Latin American countries. All it took was 160 years of immigration. Go figure.

Video: lafloripondio

I was reading about the weird and intriguing (and for purposes of this blog, not so relevant) theory of geological hot spots in Al Gore’s great climate change primer Our Choice, and it got me thinking. The (still unproven) idea is that areas of the earth’s surface that are unusually hot, such as Old Faithful at Yellowstone National Park in the US, can be explained by large asteroid strikes in the ocean at the corresponding place exactly on the opposite side of the world. This point, 180 degrees away, is called an antipode.

This made me remember growing up in the US and occasionally hearing grownups say “if you dig a hole straight through the earth to the other side, you’d be in China.” This, I can confirm with this nifty Antipode Map, is not the case. America’s whole collective anitpode is out in the south Indian Ocean (exception: Hawaii – you’re in Botswana!)

But it turns out that China and Latin America have some serious antipodean matching going on. John at the great Sinosplice blog apparently figured this out three years ago:

So you can see that China mostly just overlaps with Argentina, and most countries don’t overlap with any land at all. According to another website, China gets these exciting antipodes match-ups:

1. Beijing – Bahia Blanca, Argentina
2. Taipei – Asuncion, Paraguay
3. Shanghai – Buenos Aires, Argentina
4. Wuhan – Cordoba, Argentina
5. Xi’an – Santiago, Chile

Some of them are give-or-take a few hundred kilometers according to the map but still cool approximations to know.

Back in October, I posted a snippet of a Shanghai Daily article relating to Chile’s pavilion preparation for this year’s Shanghai Expo:

At the Shanghai event next year, Chile will attract visitors with three special wells. People will be able to look into the wells in the pavilion in Shanghai to see scenes and hear the sounds of some Chilean cities on the opposite side of the earth.

It still sounds hokey, but I guess now more credible than the “digging a hole to China” silliness I thought of when I first heard about it – even if those scenes and sounds are technically coming from Argentina.

Image: Sinosplice

Writing a blog about China and Latin America, some news stories seem just too good to be true. This is one of them: Real, live bullfighting may be coming to Beijing as early as next year. CAS International, a Dutch anti-bullfighting organization, reports:

According to pro-bullfighting websites, bullfighter Manolo Sánchez made a deal with the local government of the Huairou District in Beijing (Peking) to build a bullring and a bull breeding farm close to the Chinese Wall, as part of a Spanish amusement park (also with tapas bars and flamenco shows).

…

In January, they want to import 100 bulls and 100 cows from Spain and they also want to start building the bullring. The bullring will be finished in October 2010 and will be inaugurated with two bullfights. From 2011, they want to organize 16 bullfights a year, 4 in June, 4 in July, 4 in August and 4 in September.

Wow. Where to start on this one?

It’s worth remembering that China has toyed with this idea before. In 2004, Beijing almost allowed the city’s Wild Animal Park to hold a fight, but eventually scrapped the idea. City council members complained that bullfighting was cruel and had “the potential to tarnish Beijing’s and China’s image” ahead of the Olympics.

However, that same year in October, Shanghai successfully held two days of bullfights. Organizers imported bulls from Mexico, matadors from Spain, and converted a city stadium into a bullring, spending US$605,000. Bulls were taunted and stabbed with spears, but not killed.

Not all fell under the spell of “a bullfight with a truly Spanish flavor.” The editorial board of China Daily called the event a “mistake.”

While animal protection and anti-violence is becoming more fashionable in society, Shanghai’s “bravery” in staging this kind of bloodsport betrays itself as one of China’s most modern cities.

Rather than a milestone in its bid to become a much-coveted international metropolis status – indeed, the bullfighting episode is more like a slap in the face.

Will this time be any different?

Worldwide, times are tough for the industry. Spain’s northeastern Catalonia region recently banned the sport, and other regions may soon follow suit. In Latin America, bullfighting can be found in Mexico, Colombia, Ecuador, Peru and Venezuela and may survive there a bit longer. Still, anti-bullfighting sentiment is on the rise in Latin America too. Many people see exporting the sport to China and other foreign countries as a last-ditch strategy to save a dying industry. Pro-fighting optimists may believe China to be bullfighting’s last great hope.

But don’t count on it. Organizations like CAS International are already circulating petitions and mobilizing efforts to stop the sport from coming to China. On top of that, it will only take one top cadre deciding there is something decidedly “uncivilized” about the bloodsport before this plan gets scuttled like the last. Don’t get me wrong, I think most Chinese could stomach the blood to watch for the “mystery” and “passion,” as this account can attest.

My guess is this project becomes something much more benign and tourism-friendly – more “Spanish amusement park” and less bullfighting. Bloodless “bullfighting demonstrations,” perhaps. Tourists dressed up as matadors. Tours of the stables and photos with the bulls. Chinese copies of Death in the Afternoon, plastic banderillas, magnets and other tchotchkes – these all seem likely.

An authentic bullfight in Huairou? Not so much.

Image: China Daily

A few noteworthy links from around the web (a few that I’ve had on my desk for some time now). With a little down time in the coming weeks, I’ll hopefully give a few of these stories their proper treatment. But, for now, the short list:

Bloomberg reports that newly christened 2016 Olympic city Rio de Janeiro is looking to China to help finance the its planned US$11 billion in Olympics-related infrastructure projects. (China knows a thing or two about the topic). State-owned China Development Bank loaned Brazilian state-owned oil giant Brasileiro SA US$10 billion earlier this year.

On the subject of oil, the Latin Business Chronicle republished an article from the Wharton Business School on China’s quest for oil in Latin America. Buried half-way down in the piece is a good breakdown of China’s proposed deal to buy Argentinean oil exploration and refining firm YPF for around US$17 billion – which would be the largest-ever overseas deal by a Chinese company.

R. Evan Ellis, whose book China in Latin America: The Whats and Wherefores has been reviewed nicely here, published another exhaustively cited bird’s eye view of what China’s presence in Latin America means for the US earlier this month for the Jamestown Foundation’s China Brief.

Two of his four main claims raised an eyebrow for me: “[China] is enabling the survival and spread of regimes oriented against the United States, Western-style democracy and economic models” and “[China] is undermining the United States as a source of political and economic influence in the region, as well as U.S. options for regional engagement.” Ellis takes pains to point out that China is, of course, not directly undermining democracy and US influence, but rather propping up the economies and the political lives of leaders like Hugo Chavez and Rafael Correa with its investment and trade dollars. Still, should we be alarmed or is Ellis being alarmist? Is the US’s capacity for “regional engagement” actually hindered by China’s presence or is the US simply in less of a position of power?

Chile is the only South American country to commit to its own pavilion at next year’s Shanghai Expo, spending US$6 million on construction rather than renting, according to Shanghai Daily. Fear not: Easter Island will be represented at the Chilean pavilion, as will this groan-inducing design idea:

At the Shanghai event next year, Chile will attract visitors with three special wells. People will be able to look into the wells in the pavilion in Shanghai to see scenes and hear the sounds of some Chilean cities on the opposite side of the earth.

Finally, here is a new trilingual corporate blog from the newly launched SinoLatin Capital, which specializes in China-Latin American investment deals. The blog got off to a roaring start in August, but posts have since grown a bit infrequent. I can relate. There’s more to be written about SinoLatin Capital, but for now, find some background on the company here.

Earlier this month, much was made of US president Barack Obama’s decision to impose a 35% tariff on tires imported from China. In retaliation, Beijing threatened to stop buying US-made chicken, causing the typical hyperbolic media to declare the start of a Sino-US “trade war.”

Of course, nothing of the sort has happened, and almost certainly won’t given the two countries’ mutual economic dependence. However, the unresolved question remains of how much (if any) countries should level the playing field when confronted with surging Chinese imports that undercut local producers. And it is not only a question the US must deal with. In countries like Brazil, Argentina and Mexico, low-cost Chinese imports across a range of goods remain a cause of trade tension.

At least one commentator, Latin Business Chronicle columnist Victor Mroczka, is calling for Latin American countries to consider following president Obama’s footsteps and impose their own “China safeguards,” when needed.

Mroczka, an international trade lawyer, argues that the imposition of what he calls “safeguard tariffs” against China are more effective in that they can be implemented much faster than WTO trade dispute rulings, which usually take years to be resolved (For the record, Latin American countries have initiated over 200 WTO investigations against China since 2001). By contrast, Obama’s tire tariff will take effect tomorrow, September 26, only five months after the initial petition was filed.

Second, he points out that as part of China’s 2001 WTO accession agreement, the country agreed to be subject to transitional, product-specific safeguard mechanisms, when facts warranted them, until 2013. When are these safeguards allowed to be imposed? “Where products of Chinese origin are being imported [into a WTO member country] in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers,” according to the WTO. In other words, imposing product-specific tariffs on China, until 2013, is perfectly legal within the terms of the country’s WTO accession agreement.

Finally, Mroczka argues that if one Latin American country imposes a safeguard tariff against China, it may have a knock-on effect for other Latin economies. As an example, he supposes Brazil impose a safeguard tariff against Chinese refrigerator imports:

If China’s low-price exports to Brazil increased 20 percent from 2006 to 2008 and the Brazilian refrigerator industry was losing market share and sales to China, and as a result began to reduce its workforce, the evidence would be pretty strong to initiate a safeguard action.

…

After the imposition of the safeguard tariff by Brazil, let’s assume that Mexico saw an increase of refrigerator imports from China (even a small increase) and feared that large volumes of refrigerators that were originally destined for Brazil would now be coming to Mexico and threatening its refrigerator industry as well. Reacting to this threat, Mexico could bypass the safeguard investigation process and request immediate consultations with China. If, after 60 days, the consultations fail to obtain assurances from China that an increase in refrigerator imports is not coming, Mexico could then impose tariffs or a quota. The same process could be followed by Chile, Peru, Panama, whoever.

To me, the legality of all this seems convincing enough. My question is not “Is this this something Latin American economies can do?” but rather, “Is this something Latin American countries really want to do?” To wit, the answer largely depends on where you come down on free trade and your stake in the countries involved. One man’s “safeguard” is another man’s “protectionism.”

But in the case of Latin America, it’s important to bear in mind that the region has far less leverage when “poking the dragon” as does the US. The region is dependent on China as one of its largest buyers of natural resources, its economies essentially propped up by China through the global crisis. For, say, Brazil to slap a tariff on Chinese-made refrigerators, it must make sure it doesn’t have serious repercussions for the backbone of its trade relationship with China: soy beans and oil. Ditto, Peru and Chile with copper.

Similarly, even though China “invests” in the US in its holding of US$ trillions in T-bonds, I’d argue that Latin American economies are far more palpably influenced by China’s foreign investment decisions than the US. China Development Bank – a government-owned entity – is responsible for US$ billions in loans to Latin American projects this year. In the global downturn, you can’t get that kind of financing anywhere else.

Moreover, as Latin American companies are still struggling to get their footing in the Chinese market, a retaliatory tariff against them is the last thing they need. China’s love of American chicken feet may save the US in their trade bout, but no one in China will likely notice if bottles of Chilean Malbec disappear from the shelves of Beijing because a 40% tariff makes them prohibitively expensive to import.

First off, apologies for the major drop-off in posting on DH lately, things should pick up again in the fall when I’m more settled in my new home in Beijing. Nevertheless…

Latin America and Africa are often lumped together when talking about China’s interest in them – namely, as two gigantic sources for natural resources. While many of the billion-dollar trade and investment deals have been made in oil and mineral resources to keep the furnaces back in China blazing, agricultural resources are also included. China has had a national policy for 95% food self-sufficiency in place for some time, but with 22% of the world’s population (eating increasingly more and more) and only 7% of the world’s arable land, China is looking abroad as it stares down some frightening food-supply pressures.

Unlike the last wave of Chinese agriculture investment abroad (in the 1990s, largely to Southeast Asia), Chinese companies are now flocking to southern Africa to buy up and develop fertile African farmland to grow food for export. By 2007, China had 63 agricultural investment projects in southern Africa, and last year, Beijing promised US$800 million to modernize Mozambique’s agricultural sector. Loro Horta wrote a good overview of the situation for the Jamestown Foundation earlier this year.

But what about Latin America? With some of the world’s richest agricultural regions in the Argentine Pampas, is China buying up farmland there as well? Apparently not.

Reuters published an interesting article last month about China’s noticeable non-interest in buying up Latin American farmland in the same way it has in Africa.

Land prices and mature farming markets in Brazil and Argentina, the engines of Latin America’s commercial farming, make investments in big production projects less of a bargain for China.

“China’s ideas about farm prices are very different from the reality in Argentina’s Pampas. They think they can buy good farmland for $1,000 per hectare.” said Ernesto Fernandez Taboada, executive director of the Argentine Chamber of Commerce for Southeast Asia.

The best Pampas land costs up to 10 times that much.

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“They wanted to enter but couldn’t after they realized what kind of investment it would take to have their own local infrastructure and logistics to control production,” said Carlo Lovatelli, president of Brazil’s grain crushing association Abiove.

The complexity of local farm markets makes it difficult to guarantee that the products of Chinese investments in food here would make it efficiently to China’s ports.

“Today China is offering financing and access to cheap labor, neither of which Brazil especially needs,” said emerging market analysts Trusted Sources in a report.

Local growers are closely integrated with trading companies, which provide credit and inputs like seeds, agrochemicals and fuel. Producers, already carrying heavy debt loads, have little need for additional financing. They also have ample directed government credit.

In Africa, Chinese financing goes a lot farther. The Asian nation also has been allowed to deploy one of its competitive advantages in Africa – low-paid Chinese workers. Entrenched Latin American labor interests would not permit that.

Instead, China has bought Latin American agricultural products (especially Brazilian soybeans) directly. This is possible because soybeans are a major exception of the 95% food self-sufficiency policy described above. According to Reuters’ article, China buys 65% of the world’s seaborne soybean trade, making it the country’s number one import from Brazil.

So, while China may not be buying up Latin American agricultural land directly, Latin American is and will continue to play a major role in what ends up on Chinese dinner tables. Should China’s food self-sufficiency policy start causing hunger pangs (as it may already be doing) – and Beijing open up the country to more agricultural imports – look to the sprawling estancias of Brazil and Argentina to play a major role in becoming China’s “new rice bowl.”

For fans of contemporary art in Beijing, there are still 10 days left to catch the inaugural 798 Beijing Biennale 2009 happening at the city’s 798 Art District. Within the factory-turned-art-exhibition compound, there are 12 venues showing Biennale work from contemporary artists, Chinese and foreign.

I was especially drawn to 798’s Linda Gallery to check out one of China’s first all-Latin American art showings. The exhibition, “Turn on, Tune in, Drop out” features 25 Latin American artists from eight countries in a wide range of mediums. Curators Nicolás and Katiushka Arze, from Chile, have a good what-it-all-means blurb in the gallery’s information guide:

“The curatorial project for the Latin American part of the biennial does
not delineate a specific art movement or dialogue within art generations. It explores the risk of literally inventing Latin American art in China. This is only possible in a country like this, so unrelated and so far from Latin American art. We are not concerned with surveying the direction of contemporary Latin American art, but instead seek to produce cultural exchange and enrichment between artists whose backgrounds might clash…”

Entering the gallery, you’re faced with a set of five vibrant abstract
color compositions. Something feels familiar about these colors…and then you realize what you’re looking at: folded national flags. Ana Roldan’s (Mexico) “Colombia, Chile, Uruguay, Mexico and Brazil” is a nice introductory piece, acquainting visitors with the Latin American theme without telling them outright.

Not many of the works deal with “China” overtly. My favorite piece in the collection were graphite floor rubbings of “Private Property” signs from various locales around New York City. About her work “Property Lines,” artist Francisa Benitez (Chile) told Diariocrítico de México, “I am very happy to show in China how, in the US, private property is sacred, with signs that are sometimes very small…” What I enjoyed was studying the seemingly endless typefaces and styles, and imagining the past areas they belonged to.

A stronger sense of “China” comes from Nicolas Grum’s (Chile) use of a
common fuel source throughout the country: coal briquettes. Grum arranged 500 of them to spell out the words “Giants do not exist” in the middle of the gallery floor. I can’t be sure what kind of giants Grum had in mind, but from a giant’s perspective on the second floor looking down, the people looked smaller than much of the art.

The 2009 Beijing Biennale runs through September 12.

Ever since China surpassed the US to become Brazil’s top trade partner earlier this year, the table has been set for a media-inspired heavyweight bout between the Asian country and the US for dominance in Latin America. Judging by the headlines, China is landing jabs and hooks left and right.* Take a McClatchy July 8th article, “China makes its move as the US falls back in Latin America,” for example:

China has moved aggressively to fill a vacuum left by the United States in recent years, as the U.S. focused on wars in Afghanistan and Iraq and the global economic crisis sapped its economy.

“China is rising while the U.S. is declining in Latin America,” Riordan Roett, a professor of international relations at Johns Hopkins University, said by telephone while visiting Sao Paulo. “China is all over this region. They are following a state-driven policy to expand their peaceful presence.”

It’s a fine and well-researched article, filled with good examples of China’s growing economic, political, military and cultural influence in a number of Latin American countries. In economic terms, China’s soaring trade numbers (largely reflecting Latin exports of raw commodities) over the past decade speak for themselves: US$10 billion in bilateral trade in 2000 compared to US$140 billion last year.

Ten-fold growth is stunning, but how does it compare to the champ? US-Latin American trade last year was US$560 billion, four times more than Sino-Latin trade. European-Latin American trade stood at US$280 billion, twice as much. In addition, with foreign investment in Latin America, China will not pass the US anytime soon. US companies invested US$350 billion in Latin America and the Caribbean in 2007, compared to only US$22 billion by Chinese firms.

These remaining gaps, coupled with the US’s still far-dominant technological and innovative advantages are why Miami Herald columnist Andres Oppenheimer cautions us: Don’t believe all the China-Latin America hype:

The latest figures showing that China is emerging from the global crisis sooner — and more vigorously — than anticipated is triggering speculation that China will soon overtake the United States as Latin America’s top business partner. Sounds very interesting, but don’t bet on it

…

Many economists say that’s not going to happen in their lifetimes. While China will continue to be a major Latin American economic partner, the latest trade figures have to be taken with a grain of salt because they are distorted by the sharp drop in U.S. imports due to America’s worst economic crisis since the 1930’s Depression, they say.

Oppenheimer gives a sprawling list of other reasons for US’s likely business dominance in Latin America for the forseeable future. Average incomes in China need 47 years to catch up with those in the US. Asia’s combined military budget will only equal the US’s in seven decades. American inventors filed 92,000 patents last year, while Chinese inventors issued only 1,225, a fact that presumably means the US will maintain tech-business advantages over China for a long while. China’s population is aging as well, which will negatively impact its economic prospects in the coming years.

I personally find it refreshing that Oppenheimer takes a slightly contrarian position on China’s Rise, but most of his arguments have little to do specifically with the country’s business prospects in Latin America. I also tend to shy away from arguments involving China needing x-amount of time to close any kind of economic or social gap; the country tends to beat projections.

Curiously, what I find to be the most compelling argument against China’s unbridled trade growth in Latin America is absent from Oppenheimer’s laundry list: China’s trade relationship with Latin America remains very one-dimensional (skewed toward commodities and natural resources) and thus vulnerable. China’s hunger for oil, iron ore, copper and soya is boundless now, but who’s to say which resources will be hot in ten years, and at what prices? The astonishing ten-fold trade growth from 2000 to 2008 coincided with a huge price increase in a number resources that were central to the trade relationship, and this will not always be the case going forward.

Regardless of who you have your money on, if the US and China are locked in for a title bout over Latin America, we’re only in round one.

*In some sense, this whole boxing metaphor is dumb, and I’m using it half-ironically. The two trade relationships are not mutually exclusive, and overall increased trade is good for everyone in a global economy.

Here’s an article from Fortune magazine published late last month on Chinese telecom suppliers making inroads in Latin America I’d meant to link to earlier. The gist: Chinese companies Huawei and ZTE are moving into the Latin American market following their success offering low-cost cell phones in Africa. Both companies have done very well in the latter continent – Huawei now has a 29% market share of the phone-company gear industry there, nipping at the heels of market leader Ericsson, with 30%. ZTE, an 11-year-old company, is now the world’s six-largest handset seller.

Indeed, on the streets of Lima, the cheapest cell phone model belongs to ZTE, which goes for about 80 soles (US$27) if memory serves. Like so many Chinese-made products, low-price usually translates to questionable quality. Buying my handset there, I remember the sales girl convincing me that I should spend the extra US$7 to buy the second-cheapest handset, a Nokia, which was much better quality, she assured me. It will be interesting to see how the company fares offering its up-market ZTE i766, which boasts mobile television.

The article discusses one major advantage that both Huawei and ZTE enjoy that other foreign telecom companies don’t: a well-connected, deep-pocketed government:

Huawei and ZTE benefit from the fact that the Chinese government holds stakes in dozens of local phone companies. It is not surprising that these telcos increasingly buy much of their infrastructure from homegrown companies. Financially, China’s telecom suppliers also benefit (like some struggling U.S. companies today) from tax rebates and R&D grants. But what really irks rivals are the government’s low- to no-interest “loans” that needn’t be repaid, and the deep discounts local companies get on the energy and raw materials they purchase from other Chinese companies. According to public filings, this year ZTE received a credit line from the government of nearly $15 billion. Beijing bestowed $10 billion on Huawei in 2004.

Chinese blue chips from different industries also offer “bundles” to emerging-market countries: Buy our phone gear and we’ll source your raw materials. “China coupled a Huawei, oil, and magnesium deal in an African package,” says James Mulvenon, author of a famous Rand report on Chinese defense electronics and technology. “Cisco can’t compete.”

Will we see similar telecom, oil and copper “bundles” between China and Latin America in the near future?

Image: unplggd.com